Trading Companies

Starting in the late medieval period, European long-distance trading activities increased in volume and density over a long period. Consequently, the capital demands of these activities also grew. The expansion of the European powers into other parts of the world, the demand of the emerging states for credit, and the emergence of new forms of production (putting-out, proto-industry, manufactories, factories) were central factors in this process. Trading companies, which in this article refers to partnerships formed between at least two people to engage in long-distance trading activities and larger financial transactions, reflected the growing demand for capital and manpower, and were to an extent the foundation upon which trading networks formed. This article describes the emerging organizational structures of trading companies from the 15th to the 19th century, traces processes of professionalization and specialization, and explores the role of merchants in cultural transfer processes.

Introduction

Research on commercial history, which since the late-19th century has produced many studies on individual trading companies and groups of merchants, usually emphasizes the integral role of family and kinship in the organization of pre-industrial trade.1 Trading companies were generally partnerships between a small group of individuals, who were frequently members of the same family or closely related. Collaboration with relatives, who enjoyed a particularly high level of trust, is viewed as a central strategy for the minimization of risk and the reduction of transaction costs in pre-industrial long-distance trade. The marriage patterns of merchants can also be understood as an "Investitionsstrategie zur Produktion und Reproduktion sozialen Kapitals".2 The inter-generational duty of family members to maintain and improve the social status and economic circumstances of the family was an important motive for the formation of networks based on kinship. Social and familial norms perpetuated the duty to help in the family business and to work for its continuing success.3 However, familial and kinship ties were no safeguard against individual wrongdoing and poor commercial decisions. Where companies cultivated broader social relationships, these often helped the company to access additional and more precise information and to gain talented employees.4

In the pre-industrial era, in addition to family companies there were many independent single traders, who transacted a large portion of regional and pedlar trade.5 However, even door-to-door trading was by no means the preserve of individuals living on their wits. In the western Alps and in northwestern Germany, family companies emerged that were characterized by a division of labour, long-distance trading and credit relationships, and a high degree of geographical mobility.6 Apart from these, there were corporately organized "regulated companies" such as the English "Merchant Adventurers" and the "Levant Company" that monopolized trade along specific routes and in which the participating merchants were subject to collective rules. "Joint-stock companies" had a state-chartered monopoly and also worked with a jointly-owned capital stock,7 though these only played a dominant role in a few branches of commerce. While the state-chartered Dutch and British East India companiescontrolled trade with Asia in the 17th and 18th centuries,8 trade within Europe and across the Atlantic during this period remained the domain of family companies.

In addition to family ties, ties of common origin and religion formed an important basis for joint trading ventures. While there is evidence of a small number of trading companies with partners from different countries from as early as 1500 (e.g., the Koler Kress Saronno company, a partnership of Nuremberg and Milanese merchants),9 these remained exceptional for a long period. Sephardic Jews in Italy only started to enter sporadic partnerships with Christians from the late-18th century onward,10 and German merchants who settled in the western European trading metropoles of London and Cádiz preferred to work with compatriots. Kinship ties played a central role both in their migration and in the organization of their business affairs.11 The examples of the Hamburg overseas merchants, who were organized in family companies, and the Rothschild banking house, in which all leadership positions were occupied by family members,12 demonstrate the importance that kinship and religious ties still had in long-distance trade and international finance in the 19th century.

Organizational forms

While the majority of the trading and banking houses of the 15th to the 19th centuries were family companies, the specific organizational form which the partners chose was dependent on the legal circumstances in the respective jurisdiction and on cultural preferences. Italian and Spanish merchant families in the 15th and 16th centuries, such as the Medici, Salviati, Frescobaldi, Bonvisi and Ruiz families, founded a series of trading companies in important centres of European trade – Florence, Lucca, Genoa, Venice, Naples, Nuremberg, Lyon, Bruges, Antwerp and London – based on family ties. While these companies were formally relatively independent of one another, in reality there was a high degree of overlap in personnel and they cooperated closely with each other. The articles of association, which specified the capital investments as well as the rights and duties of the partners, were for a limited time period, but were regularly renewed. The individual branches of the trading company could be headed by partners (compagni) or by salaried employees (fattori). The size and organizational structure of the network of branch offices were adapted in a flexible manner to suit the commercial development and the interests of the trading company. Subsidiary companies and consortia were sometimes also formed with non-relatives for specific branches of commercial activity, but a preference was usually shown for other companies from the same region of origin.13

Following the Italian example, southern German merchants in the 16th century came together to form private unlimited companies (Personalgesellschaften), in which partners invested specific capital sums "zu Gewinn und Verlust" (for profit and loss). However, in the event of a bankruptcy it was not just the partners' capital investments that were at stake. Their liability extended to the entirety of their assets, which explains why these companies became known in legal history as general partnerships. The basis of the company's organization and its commercial activity were specified in the articles of association, which – as in Italy – were for a fixed duration (usually between three and seven years), but which were regularly renewed. The articles specified the size of the individual stakes, the rights and duties of the partners, the date of the balancing of accounts, the paying out of profits, as well as the procedure in the event of the withdrawal of a partner from the company. The rights of the partners included, for example, viewing the cash books and representing the company to outside parties; duties included such tasks as business travel and the keeping of accounts. Larger companies began to distinguish between principal partners with voting rights, and non-voting shareholders, and they entrusted the management of the company to one or two of the principal partners. In large southern German trading companies such as those of the Fuggers and Welsers of Augsburg, the management of the company increasingly became concentrated in the hands of one or two "rulers" during the course of the 16th century.14

In addition to the capital investments of the partners "for profit and loss", trading houses could also avail themselves of capital at a fixed interest rate as deposits. In doing so, they increased their capacity to engage in larger commercial transactions, but they also took on the risk of being unable to pay the depositors in the event of commercial difficulties and of going bankrupt. In the 16th century, Augsburg trading companies sought to limit this risk by accepting deposit capital primarily from relatives. However, an unfavourable ratio of equity to loan capital often led to bankruptcy under these conditions as well.15

Large southern German trading companies established a permanent presence at important foreign trading centres, which was accommodated in purchased or leased premises that contained the employees' living quarters, the business rooms and the warehouses. The head employee or "factor" was bound by instructions, was accountable to the company management, and received a fixed salary. In some cases, he was a non-voting partner of the company, but not always. If for reasons of cost a company could not, or did not wish to maintain a permanent presence at a particular location, it had its business at that location transacted by an agent or commission merchant. In contrast with a factor, the latter also worked for other companies, as well as for himself, and he received a commission for his services.16 From the late-16th century onward, Italian, southern German and Dutch companies increasingly employed the services of commission merchants, agents and shippers to reduce transaction costs.17

Extant articles of association of Italian trading companies that had a presence in Frankfurt am Main demonstrate a similar pattern in the first half of the 18th century to that described for the Italian and southern German trading companies in the 16th century. These Italian companies were also overwhelmingly partnerships of two to eight family members, close relatives or people from the same region of origin. Articles of association with a fixed term of two to seven years with the option of renewal represented a "vorteilhafte Mischung aus Flexibilität, Kontinuität und Transparenz" (advantageous mixture of flexibility, continuity and transparency).18 The arbitration clauses contained in numerous articles of association of Italian and southern German companies have been interpreted as evidence of the preference for internal forms of conflict resolution. However, more recent studies demonstrate that merchants were by no means reluctant to have recourse to public courts in the event of internal disagreements regarding the fulfilment of contractual obligations. For example, disagreements regarding bills of exchange, articles of association and bankruptcies constituted a substantial portion of the cases heard by the highest courts of the Holy Roman Empire of the German Nation.19

While trading companies with unlimited liability on the part of the partners remained the predominant type throughout the early modern period,20 forms of liability limitation also emerged. Italy led the way in this area as well. The accommandite (limited commercial partnerships), which appear in the records from the 16th century onward, distinguished between the unlimited liability of the management and the limited liability of the rest of the partners. Similarly, partners in the Nuremberg Saigerhandel companies, which organized the production and distribution of copper and silver from mines in Saxony and Thuringia, were not exposed to any liability beyond their investment. From the 17th century onward, the limited commercial partnership became increasingly common and widespread in Europe.21

Another system of company organization can be observed among Sephardic Jewish merchants in Venice and Livorno in the 18th century. Here, written articles of association appear to have been the exception. Instead, family arrangements and alliances – the preference for marriages among blood relatives, the joint administration of the paternal estate by the sons, large dowries that were invested as trading capital – formed the basis for trading companies that had neither fixed terms nor any form of liability limitation. However, successful companies in Livorno combined this traditional type of business organization with flexible forms of representation.22 The partnerships of London merchants engaged in overseas trade in the 18th century were likewise often based on verbal agreements; kinship appears to have been less important in this case than shared commercial interests and the idea of spreading risk to multiple shoulders.23

Nationes of foreign merchants

The merchant class in European trading metropoles was often highly international in composition. Of the up to 2000 merchants engaged in long-distance trade resident in Antwerp in the mid-16th century, only a quarter were born in the Netherlands; at that time the city was home to about 300 Spanish, 200 Italian, 150 Portuguese, 100 French and 300 German merchants, and they were augmented by 300 to 400 English merchants during the trade fairs. Consequently, the historian Fernand Braudel (1902–1985) described Antwerp as a "Welthauptstadt von fremden Gnaden" (capital of the world by foreign graces).24 In the 16th century, Italian merchant bankers played a very prominent role in Lyon; in 1571 they constituted 154 of the 183 foreign merchants and bankers registered in the French commercial metropolis.25 An internationalization of the merchant class can also be observed in German trading centres such as Nuremberg, Frankfurt am Main and Hamburg from the second half of the 16th century onwards. As the native Nuremberg patricians increasingly withdrew from long-distance trade, representatives of Dutch, Austrian, Swiss and Italian trading companies settled in the Franconian city. In the years 1621–1624, 26 Italian and 32 Dutch companies were established there; at this time more than one fifth of the turnover at the Nuremburg Banco Publico was transacted by these two groups.26 The rise of Frankfurt to a commercial metropolis in the late-16th century was due in large part to the arrival of Dutch religious refugees and in the subsequent two decades many Italian merchants settled there as well.27 The increase in maritime trade through Hamburg around 1600 was assisted in no small part by the Dutch and Sephardic Jewish companies present there.28 Spanish and Portuguese Jews who were expelled from the Iberian Peninsula after 1492, often found favourable conditions of settlement and bright economic prospects in port cities. Maritime centres such as Amsterdam, Hamburg, Livorno, Venice, Trieste and London developed into cosmopolitan commercial cities not least because of the presence of substantial Jewish mercantile groups.29

The foreign merchants were often organized in Nationes, which enjoyed a certain degree of internal autonomy and were characterized by close commercial and social relationships between their members. In some cases, they had their own places of worship and confraternities.30 The position of these Nationes within the respective city was generally characterized by a tension between liberties and privileges on the one hand, and restrictions and control on the other. For example, in Venice groups of foreign merchants were for a long time obliged to reside at specific locations such as the Fondaco dei Tedeschi (house of the German merchants), and to conduct their business under state supervision and in the presence of city brokers. As Venice was the most important centre for the procurement of goods from the eastern Mediterranean region, and as the republic prohibited its own subjects from engaging in trade with the Holy Roman Empire, the city was commercially very attractive for German merchants in spite of these restrictions, which were only loosened in the second half of the 16th century.31 Cities such as Hamburg and Frankfurt denied religious minorities full citizenship up to the beginning of the 19th century. In Lutheran Frankfurt, for example, it was not just Jews who were confined to an inferior legal status, but also Catholics and Reformed Protestants, and Italian merchant families fought for decades to gain legal and commercial equality with the native merchants.32 In the 17th century, the city council of Hamburg concluded collective foreign contracts with the Dutch and the Portuguese, which regulated their trading activities and formed the basis of their legal status as a Nationes.33 The presence of foreigners and minorities in European commercial cities was generally less attributable to abstract principles of tolerance than to concrete economic interests and pragmatic arrangements.

Specialization and professionalization

At the beginning of the early modern period, combining different forms of commercial and banking business was typical of the large Italian and southern German trading companies. For example, the commercial activities of the Fuggers of Augsburg encompassed silver, copper and gold mining, trading in metals, the putting-out of textiles, the procurement of luxury goods for royal clients, as well as loans to European monarchs.34 Due to this variety of activities, the Fugger Company and other large southern German trading companies developed "zu multifunktionalen, horizontal und vertikal gegliederten Unternehmen" (into multifunctional, horizontally and vertically structured enterprises).35 The companies that were founded in various southern and western European cities by members of the Bonvisi family from Lucca combined an extensive trade in goods with activities in the areas of exchanges, credit and insurance.36

In addition to these merchant bankers who operated on an international scale, other forms of specialization were already evident in the 16th century. The Florentine Benvenuto Olivieri (1496–1549), who settled in Rome and became one of the most important bankers of Pope Paul III (1468–1549) and for a time even served as depositor general of the Apostolic Chamber, was typical of a group of Tuscan merchants who concentrated on providing financial services to the Roman Curia, in particular supplying credit in return for the farming out of taxes and customs duties.37 In southern Germany, small and medium-sized trading companies frequently concentrated on specific commercial branches. For example, in the 1550s textiles accounted for more than 90 percent of the turnover of the Grimmel company, which was directed from Constance and Memmingen.38

A series of commercial and financial innovations that emerged at important trading centres such as Amsterdam, Hamburg, Frankfurt am Main and London from the late-16th to the 18th century brought about an increasing separation between mercantile and banking business, as well as an increasing specialization on individual branches of commerce, and on forms of commission trading and shipping business. The foundation of banks of exchange by city governments (Amsterdam in 1609, Hamburg in 1619), and the emergence of bill discount and endorsements made cashless payment and multi-lateral settlement between merchants easier. Stock exchangesdeveloped into central sites for the coordination of business and the exchange of information. Printed price and exchange currents improved the flow of information about market trends and goods prices, and thus increased the transparency of market relationships. Maritime maps, nautical handbooks, geographical works, textbooks on bookkeeping, and merchants' handbooks and almanacs provided traders, shipowners and ship captains with commercially relevant information.39 The increasing concentration and reliability of postal routesand communications also assisted the exchange of mercantile correspondence.40

Private banks that emerged at important financial centres such as Frankfurt, Cologne and Hamburg in a "langen Emanzipationsprozeß von den alten Kaufmanns- und Speditionsaktivitäten".41 concentrated initially on exchange business and lending to princely sovereigns, and their customers primarily came from the higher social strata. In the 18th century, banking houses such as that of the Bethmann brothers in Frankfurt also played an important role in supra-regional clearing and settlement, and as financiers to merchants and larger manufacturers.42 The English "country banks" that appeared in large numbers in the second half of the 18th century and the private banks of the 19th century combined exchanges, deposits and lending, and were an important source of capital for the establishment of businesses in the early phase of industrialization.43

Trading companies can be divided based on the level of their involvement in the production of goods into "Nur-Kaufleute" (purely merchants), who concentrated exclusively on the marketing of goods, putting-out merchants, who coordinated the cottage export production of craft goods, manufacturers, who ran large centralized factories, and mining and metal entrepreneurs. While manufactories were heavily dependent on the demand of the courts and territorial states for luxury goods and materials for equipping standing armies, in the textile and metal trades putting-out tended to predominate. Putting-out involved merchants organizing the decentralized production of goods in homes and small workshops, as well as marketing the goods in and beyond the region of origin.44

Merchants in proto-industrial regions often specialized in the distribution of regional craft goods and the organization of production processes. For example, the Johann Caspar Harkort Company based in Hagen-Westerbauer, which made the transition from a trading company to a factory in the 19th century, had concentrated from the 1670s on the distribution of iron and steel products from Brandenburg, particularly in the North Sea and Baltic regions, had put out raw materials to wire and steel producers and had acquired a number of hammer mills. While the distribution of goods through commission merchants – primarily in Lübeck – was initially central to the company's business, in the second half of the 18th century direct trade by means of correspondence and commercial travel became increasingly important. Thus, the Harkort Company, which was family-owned and had close family ties with other merchants in the Rhine valley and Westphalia, specialized on a limited spectrum of high-quality products. Other commercial branches such as textiles, the processing of agricultural produce and the production of coal were only of secondary importance for this trading company.45

In British trade with North America, changes in the law regarding trade and customs along with commercial and financial innovations also set processes of specialization and concentration in motion. For example, hundreds of small companies had been engaged in trade with the tobacco producing colonies of Virginia and Maryland in the 17th century. However, the raising of import duties, falling tobacco prices, the increasing complexity of credit relationships and the option of having shiploads of good insured meant that from the 1680s onwards a large portion of the tobacco trade was dominated by a handful of English companies – and after the Act of Union of 1707 some Scottish companies – who largely concentrated on Atlantic trade.46

For central European companies, the distribution of colonial products, which they procured in the Atlantic port cities, became a lucrative field of business. For example, of the spectrum of goods traded by the Amman trading company in Schaffhausen in Switzerland around 1750, dyes – particularly indigo – accounted for two thirds, and stimulants such as sugar, tobacco and coffeeaccounted for one fifth. In the 1770s, dyes, which were supplied to textile producing regions such as Swabia, Franconia, northeastern Switzerland and the Danube region, actually constituted three quarters of the company's traded goods. The Swiss trading company procured these goods primarily in the French and Dutch Atlantic ports.47 The German merchants who settled in London and Cádiz in the 18th century often came from proto-industrial regions of northwestern Germany, Silesia and Saxony and combined the distribution of craft products from their regions of origin with the import of overseas goods.48

The increasing specialization of trading and banking houses in particular fields of business was accompanied by tendencies towards professionalization. As early as the late-medieval period, it had been common for merchants' sons to be sent to important European trading centres at a young age to be educated. There they could learn foreign languages, the techniques of commercial accounting and commercial practices.49 This education, which was generally quite hands-on, was increasingly systematized and differentiated through the use of commercial handbooks and notebooks, as well as textbooks and treatises.50 Among the factors and other employees of large southern German trading companies in the 16th century, who underwent a careful education, were remunerated for their activities, and could climb up the ranks within the internal company hierarchy (merchant's assistant, accounts clerk, cashier, factor, chief accountant), already evinced characteristics of a professional class of commercial employees.51 Textbooks from the 18th century such as Carl Günther Ludovici's Grundriß eines vollständigen Kaufmanns-Systems (Leipzig 1756) stated that an "ehrbarer Kaufmann" (honest merchant) was distinguished by the fact "dass er die Handlung gehörig gelernt habe, oder doch wenigstens verstehe; insonderheit aber muß er diejenige Handlungsart, die er zu treiben gedenkt, wohl begriffen haben".52

Trade and cultural transfer

Over the course of the early modern period, the systemization of commercial knowledge in merchants' handbooks, textbooks and treatises led to a gradual standardization of commercial practices and the emergence of an international mercantile culture. For example, it has been observed that commercial correspondence in the 18th century largely adhered to uniform rhetorical conventions and was guided by cross-cultural norms of politeness, friendly engagement and reciprocity. The multilingualism that was common among merchants and the availability of multilingual letter guides and form books made communication across cultural boundaries easier. In addition to the concentrated networks of commercial correspondence, which enabled the exchange of information on the reputation, trustworthiness and dependability of business partners, these common standards for commercial behaviour were an essential prerequisite for the functioning of long-distance trading relationships across cultural boundaries, such as those that existed in the intercontinental trade in coral and jewels between the Sephardic Jewish trading house of Ergas and Silvera in Livorno, their Italian business partner in Lisbon and Hindu merchants in Goa in India.53

Trading companies also served as agents in processes of cultural transfer through their distribution of works of art, books and luxury goods. The Fuggers of Augsburg, for example, played a pioneering role in transalpine cultural transfer in the 16th century through their recruiting of Italian artists and craftsmen, and the procurement of paintings, sculptures, antiquities and other valuable objects for their own households and art cabinets as well as for southern German rulers with whom they were connected.54 The career of the merchant Anton Meuting (1524–1591) illustrates how porous the boundary between trade and diplomacy still was at the beginning of the modern era.55 Between the 1550s and his death in 1591, he repeatedly travelled to Spain as an agent and emissary of the Bavarian dukes, bringing back valuable presents from the Spanish royal family to Munich as well as selling luxury goods there in a private capacity. In the 17th century, merchants such as the Augsburger Philipp Hainhofer (1578–1647) began to concentrate on the procurement of works of art and luxury goods for European rulers, as well as the coordination and financing of large art projects.56 The growing demand among court, aristocratic and wealthy bourgeois circles led to the emergence of art and luxury goods markets in metropoles like Amsterdam, Paris, Hamburg, Frankfurt and Leipzig, which were run by specialized art dealerships and auction houses.57

Regular contact with European royal courts, the investment of trading profits in landed property in the countryside and the accumulation of one's own territorial complex, being awarded titles of nobility in return for commercial and financial services, marriage ties with aristocratic families, and the adoption of the lifestyle of the courtly and aristocratic elites ultimately enabled wealthy merchant families to rise into the nobility. In the 16th century, the Florentine Medicis rose to the position of grand dukes of Tuscany. By 1600, the Fuggers of Augsburg were hereditary imperial counts, and held title to lands and sovereign rights in around 100 Swabian villages. A process of ennoblement can also be observed in the case of prominent Amsterdam and Venetian merchant families in the 17th century, as well as among the large London merchants in the 18th and 19th centuries.58 Notwithstanding the attractiveness of aristocratic trappings, it cannot be assumed that these processes of social advancement lowered the social position of the merchant class. On the contrary, the gaps left behind in its ranks by the process of ennoblement were usually quickly filled by mercantile social climbers and immigrants. Thus, the merchant class was by no means static. It was subject to constant social and cultural change.

McCusker, John J.: Essays in the Economic History of the Atlantic World, London et al. 1997.

Morineau, Michel: Eastern and Western Merchants from the Sixteenth to the Eighteenth Centuries, in: Sushil Chaudhury et al. (eds.): Merchants, Companies and Trade: Europe and Asia in the Early Modern Era, Cambridge 1999, pp. 116–144.

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